AI capital race sprints into winnowing phase

Microsoft

Tue 12:00

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Karen Kwok
NEW YORK, Oct 26 (Reuters Breakingviews) - Even by the crazed standards of the artificial intelligence boom, $235 billion is a lot of money to earmark in a single day. SpaceX unveiled a $40 billion chip-leasing deal on Monday, Meta Platforms laid out plans to raise up to $95 billion of equity and Anthropic released the prospectus for an initial public offering that could fetch another $100 billion. Even as credit markets tighten and stocks slip, giants are pushing their fundraising advantage ever harder. The catch is the rising price.
So-called neoclouds like CoreWeave CRWV.O, which borrow heavily to build servers for AI developers, have experienced dramatic sell-offs in their shares and debt. Yet SpaceX SPCX.O, effectively a turbo-charged neocloud, sealed what is the largest-ever financing for GPUs, the most popular chips for crunching chatbot calculations. Meanwhile, Anthropic's and Meta’s plans would equate to roughly one-third of last year's worldwide equity issuance, according to LSEG data.
None of this comes cheap. SpaceX, Elon Musk's sprawling satellites-to-social-media conglomerate, has agreed to lease chips acquired by an Apollo Global Management-run APO.N vehicle. Its rent formula returns the full financed cost over 20 quarters, plus a fixed rate, meaning the investment shop led by Marc Rowan bears no risk related to the value of the silicon after a five-year lease ends. Although terms are undisclosed, lenders expect to price the deal at interest rates of 7.75% to 8.3%, Semafor reported. The ICE BofA BBB yield index, which reflects companies with a comparable credit rating to SpaceX, has an effective yield of about 6%.
At least Musk's enterprise carries an investment-grade rating, meaning it can raise more cash than CoreWeave on the strength of its own finances. SpaceX is also in a stronger position than the leading AI lab. Anthropic, whose credit rating is pending, offered buyout firm Blackstone BX.N a yield of more than 10% on junior debt backed by chip lease payments, the Financial Times reported this month.
Equity may well get squeezed, too. Meta shares are down 9% since its stock-issuance plans became clear on Wednesday. ChatGPT maker OpenAI has lowered its valuation expectations from a previously mulled $1.5 trillion to a still-frothy $1.25 trillion in discussions over a new funding round, CNBC reported.
At base is a vast spending spree. AI capital expenditure could reach $7.6 trillion between 2026 and 2031, for which tech giants like Meta, Amazon.com AMZN.O, Alphabet GOOGL.O and Microsoft MSFT.O may issue $420 billion of debt in 2027 alone, Goldman Sachs analysts estimate.
The ability to do so should prove a decisive leg-up over smaller rivals. It does nothing, however, to prove the fundamental investment case for AI, even as markets signal exhaustion. The way to bridge the gap: pay more.
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CONTEXT NEWS
Anthropic on October 26 unveiled its prospectus for an initial public offering that could value the artificial intelligence lab at as much as $2 trillion, Reuters previously reported.
Meta Platforms said on the same day that it intends to raise up to $95 billion in its largest-ever equity fundraising. The Facebook and Instagram owner has initiated public offerings for about $35 billion in common and preferred stock, and filed for a separate at-the-market program to sell non-voting shares worth as much as $60 billion.
SpaceX said separately that an affiliate of investment firm Apollo Global Management would buy AI chips and server hardware ‌and lease them to the billionaire Elon Musk's rockets-to-AI company, in a deal with total principal payments of about $40 billion.

(Editing by Jonathan Guilford; Production by Pranav Kiran)
((For previous columns by the author, Reuters customers can click on KWOK/karen.kwok@thomsonreuters.com))